Stocks fluctuate after Fed statement

AP

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NEW YORK (AP) – Stocks wobbled Thursday as lingering worries about the subprime mortgage market and rising oil prices led investors to reconsider extending this week’s big rally.

Traders Kevin Osowiecki, left, and Kevin Hackett smile as they watch the numbers near the close of trading on the floor of the New York Stock Exchange, Wednesday, March 21, 2007. Stocks surged ahead Wednesday after the Federal Reserve said the economy seemed likely to keep growing at its current pace, allowing Wall Street to cast off some of the economic concerns that triggered a sharp selloff last month. Photo: AP

The Federal Reserve on Wednesday issued an economic assessment that the market interpreted as opening up the possibility of a reduction in short–term interest rates. The statement unleashed a wave of buying that boosted the Dow Jones industrial average 159 points and continued in Asia and Europe Thursday.

Investor enthusiasm over the Fed statement waned a bit as climbing energy costs made it look unlikely that inflationary pressures will ease enough to provoke a rate cut, and as market experts debated whether the Fed’s slight shift in language truly suggested that the central bank is considering doing so.

"At the end of the day, I don’t think it means a heck of a lot," said Stephen Massocca, president of Pacific Growth Equities. "The market received it very, very well, but ultimately the Fed is news–dependent."

Investors also turned their focus to speeches by Fed officials, as well as a Senate committee hearing on subprime mortgage lenders, which make loans to people with poor credit. The sector’s financial troubles have been a big factor in the stocks’ recent volatility.

Falling unemployment claims and strengthening markets overseas kept stocks from sinking, but failed to provide a huge boost to build on this week’s surge, which gave the Dow its best three–day point gain since November 2004.

In midday trading, the blue chip index rose 18.11, or 0.15 percent, to 12,465.63.

Broader indicators also fell. The Standard & Poor’s 500 index lost 1.72, or 0.12 percent, to 1,436.76. The technology–dominated Nasdaq composite index declined 2.58, or 0.11 percent, to 2,453.34, pulled lower in large part by a profit warning by cell phone maker Motorola Inc.

In a reminder to investors that inflation is still high and that Americans may need to cut back on discretionary spending, oil prices climbed above $61 a barrel on the New York Mercantile Exchange. U.S. retail gasoline prices have surged about 20 percent over the past two months as supplies decline ahead of the peak driving season.

High fuel costs overshadowed a Labor Department report Thursday that the number of laid–off workers seeking unemployment benefits fell to 316,000 last week, the third consecutive decline – usually a good sign to investors that consumers are finding work and likely able to keep spending.

Bonds fell after the jobs data, pushing up the yield on the benchmark 10–year Treasury note to 4.57 percent from 4.54 percent late Thursday. The 10–year yield was higher than that of the 2–year, which many market participants took as a positive development given that prior to Wednesday, short–term yields had exceeded long–term yields since August 2006, a pattern that some say portends a recession.

The dollar rose against other major currencies, while gold prices climbed.

A Senate committee hearing Thursday addressed concerns related to the floundering subprime lending market, whether federal regulators should get involved, and how it might affect the broader housing market.

In addition to subprime woes, oil prices and the Fed’s stance on interest rates – which the central bank has kept on hold at 5.25 percent for six straight meetings – investors also digested corporate outlooks and earnings reports.

Technology shares came under pressure after warning by Motorola that the cell phone maker will swing to a first–quarter loss due to declining sales. Motorola fell $1.05, or 5.6 percent, to $17.69, trading at nearly two–year lows.

Palm Inc. fell $1.63, or 8.4 percent, to $17.82, as investors’ speculation that the smart phone and handheld device maker could be taken over by Motorola diminished.

Barnes & Noble Inc. reported an increase in its fiscal fourth–quarter results, but the figure missed expectations. Rival book, music and movie seller Borders Group Inc. reported it swung to a fourth–quarter loss and announced plans to close nearly half its Waldenbooks stores.

Barnes & Noble fell $1.19, or 3 percent, to $37.81, and Borders fell 25 cents to $21.18.

KB Home, one of the largest U.S. homebuilders, said its first–quarter profit fell 84 percent, but the results came in ahead of Wall Street’s lowered expectations. KB Home fell 17 cents to $47.62. l